We recently compiled a list of the 7 Best Beverage Stocks that Pay Dividends. In this article, we are going to take a look at where Constellation Brands, Inc. (NYSE:STZ) stands against the other beverage stocks.
Beverages Market
The food & beverage sector is experiencing significant growth, propelled by a movement towards sustainability and technological advancements. The ready-to-drink beverage market registered a 2% increase in volume in 2023 due to innovations in product mix. Moreover, as businesses adopt environmentally friendly practices and undergo digital transformation, the industry is set for continued development.
The Food and Beverages Global Market Report 2023 indicates that the market is expected to expand at a compound annual growth rate (CAGR) of 6.3% until 2027, underscoring a promising outlook for this vibrant industry.
Persistent inflation and rising interest rates in the recent past have led the industry to grapple with many challenges. This has affected consumer sentiment, driving them toward affordable store brands and quick-service restaurant options. Since 2023, companies have been tackling this situation by passing costs to the consumer; however, any further price increase is going to backfire now demand has become elastic.
Moreover, rising interest rates have also affected beverage makers. Their cost of capital and investment dynamics have been hindered, so companies are leveraging technological solutions, such as automation and data analytics, according to PNC Insights.
However, inflation has fallen to 2.5% in August, prompting improved consumer purchase patterns in packaged goods. According to PMI survey data reported by S&P Global Market Intelligence, global consumer spending growth demonstrated resilience in the second quarter of 2024, driven by an increase in demand for both goods and services. Moreover, the optimism in the strength of the U.S. economy increased to 41%, reflecting greater consumer willingness to spend.
Thus, in 2023, the spirits category maintained its leading position in the beverage sector, surpassing both beer and wine for the second year in a row. As reported in our previous article on best beverage dividend stocks to buy, the revenue increased by 0.2% for U.S. spirits, totaling $37.7 billion, according to the annual economic report from the Distilled Spirits Council of the US (DISCUS). Although this growth is modest, it represents a 0.4% advantage over beer and a significant 26.1% lead over wine sales. Moreover, pre-mixed cocktails emerged as the fastest-growing segment within the spirits category, experiencing a remarkable revenue increase of 26.7%, amounting to $2.8 billion.
Emerging Trends in the Beverage Industry
Like the shifting consumer purchase patterns in other industries, similar trends are also visible in the beverage sector. People are interested in fitness and health and look for nutritious products with lower sugar content. As such, research suggests that 77% of Americans are interested in lower sugar intake in their diets.
The global sugar-free beverage market is expected to reach $38 billion by 2032, exhibiting a CAGR of 7.32%. The main factor behind the demand for healthy beverages is the increase in obesity rates worldwide. Global obesity rates increased from 4.8% in 1990 to 14% in 2022. With the significant rise in overweight and obesity rates, there has been a corresponding increase in consumer interest in sugar-free products, thereby promoting a shift towards healthier alternatives within the food and beverage industry.
Moreover, customers are becoming increasingly concerned about the Corporate Social Responsibility (CSR) of companies when making purchase decisions. Research indicates that 87% of customers are likely to buy products from the companies that work on issues they care about.
Sustainability is becoming increasingly important in the packaging industry, just as it is in other sectors. Reusable packaging can help reduce CO2 emissions by 60%. Hence, this is why beverage brands are adopting this trend. Thus, global sustainable packaging was valued at $228 billion in 2019 and is expected to grow at a CAGR of 5.1% until 2027.
Methodology
To curate the list of best beverage stocks, we scanned Insider Monkey’s database of 912 hedge funds as of Q2 2024 and picked companies that are essentially engaged in the production and distribution of various liquid refreshments, including soft drinks, alcoholic beverages, coffee, tea, bottled water, energy drinks, fruit juices, sports and nutritional drinks, and dairy-based beverages. From that list, we chose seven companies that pay dividends to shareholders and ranked them in ascending order of the number of hedge funds having stakes in them as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A winemaker examining a glass of red wine from a barrel in a cellar.
Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Funds Holders: 46
Constellation Brands, Inc. (NYSE:STZ) deals in the production, marketing, and selling of beer, wine, and spirits. It provides beer under well-known brands including Corona Extra, Corona Familiar, Modelo Especial, Pacifico, and several other brands.
Constellation Brands, Inc. (NYSE:STZ) started fiscal 2025 on a solid note mainly driven by the strength in the beer portfolio. It reported an increase of 6% in the enterprise net sales for the quarter. This increase was supported by a growth of 8% in sales of the beer business.
The operating profit of the beer segment also surged by 16%. This segment posted a 6.4% growth in the depletion volumes and a 7.6% rise in shipments during the quarter. Modelo Especial continued its market dominance as the top share gainer and grew its household penetration. Pacifico also delivered an impressive performance with over 20% growth in the depletions. As a result, the brand is now the fourth-highest share gainer in the beer category.
Similarly, Modelo Chelada reported a 5% growth in depletion supported by the introduction of two new flavors. Overall, the beer segment benefitted from the strong holiday performance and contributed to 2.6% growth in operating margins on a year-over-year basis.
However, the wine and spirits segment suffered a 7% decline in net sales during the first quarter. This was mainly driven by global market challenges in the wine segment. In contrast, the craft spirit portfolio achieved double-digit sales growth in the U.S. market due to commercial initiatives, stabilizing the segment’s performance.
Constellation Brands, Inc. (NYSE:STZ) is focused on expanding its brewing capacity with new developments at Veracruz and Obregon. Similarly, it also completed the acquisition of Seasmoke to address gaps in the wine market. It has also started the sales process of a few spirits and wine non-core assets to partially offset the acquisition costs. However, the wine sector is a challenging situation for the company as wine consumption declined by 2.6% in 2023 across the world.
Nevertheless, the company distributed $185 million in dividends and made share repurchases of $200 million. The stock has a dividend yield of 1.62%, as of September 15.
Analysts predict an upside of 17.59% in the share price, and 46 hedge funds have invested a total of $1.2 billion in the company as of Q2 2024, as per Insider Monkey’s database.
Overall STZ ranks 6th on our list of the best beverage stocks that pay dividends. While we acknowledge the potential of STZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than STZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
